September 27, 2005

Let’s get things clear here…I am a slacker. And from time to time I wander off. That means that there will be gaps on this blog - I suspect substantial ones. And this is the last I will mention it (yeah sure…right). The funny thing it that I actually really enjoy writing. Though my typing is a pain in the ass because I must review and proofread everything I do at least 4 times…and then I seem to always miss one or two typos. But we can all live with that, can’t we. After all, my typoing is the stuff of legend. (segway into humorous anecdote).

In 97 the online gaming world was new and the internet was still in large part more of a playground that a commercial thoroughfare and Quake was King! I don’t really know if any other games were being played online, but I know that everyone who was into FPS was playing Quake. Carmack had just released Quakeworld, a free version of Quake that he was basically beta testing online, that was Windows based. Everything up until that time was done on DOS. So, this was a big thing. Windows 95 was the platform. But JC was not into the whole Direct X deal prefering the Glide OpenGL API to the one’s that windows was pushing at the time. And the 3Dfx Voodoo Glide video cards made the game oh so sweet.

I had stumbled on a mod called Thunderwalker CTF. It was being done by Panda and Fezzik, two guy who at the time were in college somewhere in Minnesota I think. But they also had put together a mail list that was really the glue that held the TW mod community together. Thunderwalker was the fastest hottest FPS mod ever. (F8S still runs a server from time to time, if you ever want to check it out! 216.86.167.22) TW was also without question the most balanced game, in terms of scroring, I have ever played.

The guys on the TW mail list are still my friends and are largely responsible for much of the technical knowledge I have and for me getting involved in the industry. Many are now developers and several worked at Game Spy “back in the day!” helping turn it into the industry leader it is.

Clan CNN ran the best servers and were the undisputed leaders of the pack among TW clans. Apparent one of the founders, Emperor, worked at CNN FN online and was able to host a few servers at their data center. And when you captured the flag on a CNN server you got that “this is CNN” instead of the usual “Spoooon.” But what does this have to do with my typing you ask…well let me tell you…

We were discussing the viability of actually collecting a few dollars from people who were playing on the CNN server to help defray the costs of the server and pay for upgrades on the mail list. The question arose as to whether this would amount to commercial exploitation of the game Quake under the id Software EULA requiring a royalty to be paid to id. At the time, for some reason that escapes me now, I happened to have my QUAKE installation CD (with the EULA on it) in my briefcase. So I quickly typoed the following and hit the send button, immediately emailing the entire list something along the lines of

September 19, 2005

I was approached a few weeks ago about doing this regular monthly article for Gamasutra and thought it would be a good thing. So, then I began mulling over what sorts of topics would be fun for me to do and of value to the readers. Well, with all that’s been going on lately such as Hot Coffee and the Jack and Hillary show, I was tempted to use the opportunity to rant on about lawyerly things like the Bill of Rights (the first ten amendments to the U.S. Constitution) and the potential impact these present issues can have on free speech - or possibly a rant about the desperate need for our industry to make a conscious effort to present games as a valid “art form” just as the film industry has done with its commercial medium. These are, for sure, issues I have something to say about and that I believe need to be voiced… but instead I decided to save my rants for future articles, and make my first one about helping developers deal with one of the more knotty business issues they face - royalty audits.

Audit Basics

Most publisher contracts contain a provision that provides developers a right to periodically audit the publisher’s financials related to their game in order to verify that the royalty credits and payments due the developer are properly calculated and accounted for. The audit is usually at the developer’s expense. But, typically, if a discrepancy of more than 5-10% is discovered, the cost of the audit is paid by the publisher. This protects the developer from any mistakes on the part of the publisher in determining the “net proceeds” from which royalties are set or inadvertent miscounting of units sold. It seems really simple, and certainly sounds like a good thing for any business to do. There are few, if any, developers who would sign a publishing contract without an audit provision - at least none of my clients would.

Here’s the odd part… the exercise of audit rights by developers is, in reality, fairly rare. I have asked developers about this. Even in cases where they felt that they were due royalties, I have had developers express a strong reluctance to exercise these rights, because they think that to do so might create the perception that they didn’t trust their publisher. Of course, this is not really a matter of trust - it is a matter of business sense. The continuing failure of developers to routinely exercise their audit rights creates a void into which the most lax accounting practices can easily fall on the publisher’s end.

You see, if developers don’t enforce their audit rights, there is no incentive for the publishers to use the necessary high degree of care in determining the appropriate royalties. This level of care takes time, and time is money. So, if no one is going to audit, why bother? Not surprisingly, any slop usually lands on the publisher’s side of the balance sheet. If any accounting errors do occur, it is unlikely that they will result in a higher net revenue figure or more units sold.

Let’s be serious here. Developers fortunate enough to make a game that puts them in a position to receive back-end royalties should be sure that they get every single dollar they are entitled to, because it is an all too rare occasion. Sure, for most developers, it’s a buyer’s market and there are more developers looking for publishers than there are publishers looking for developers. So this may not seem like an easy decision, at least politically. But it sure is a simple financial one. Audits cost several thousand dollars. Compared to the budgets of most games, it is a small price to pay to make sure that you are getting everything you are due.

Besides, it seems to me that the only publishers who would be offended by a developer enforcing its audit rights are probably not ones you should be doing business with in the first place. Developers can do worse than have publishers believe that they are competent business people willing to enforce their contractual rights. For example, they could be viewed as incompetent business people that are easily taken advantage of.

The 6 Million Dollar Game

I was on a panel discussion recently at the Microsoft Meltdown in Seattle where we were discussing publisher deals. This was a pre-contract through gold master sort of discussion, and prior to the presentation, I asked that we go past the delivery of the game and include audits in our discussion. I almost forgot about it, but one of the panelists, a top-tier developer, reminded me about this last topic of discussion as we were about to close. I soon found out why he remembered because numbers like these are hard to forget. At first I was a little surprised to hear him say that his studio always audits every publisher deal. Why? Because when they audited their first major deal they found 6 million dollars (yes…that’s $6,000,000.00) in royalties due them that had not been paid. Apparently, the issue there was the manner in which the publisher had been calculating net proceeds rather than the number of unit sales. But, whether it is the methodology or simple accounting of units sold, an audit should reveal any errors.

Sure, there are only a few games that hit numbers like that, and there are only a few developers in the top tier. But mid-level independents that live from one game to the next are even more thinly capitalized, and for many, a few hundred thousand dollars in inadvertently omitted royalties could make the difference between success and survival.

Audits Make Business Sense

Like a close friend of mine who does product acquisition for a major publisher says about dealing with a publisher, “It’s not my job to protect your financial interests and if the developer does not have the business sense to ask, then I’m not going to offer.” Just as this basic business principle applies to the negotiation of publisher contracts; it also applies to developer audits. If you don’t ask, they will not offer. So, while the exercise of your audit rights is certainly an expense, it can often be money well spent.
Review your contracts so that you are well aware of what your audit rights are and how to exercise them. Then, any time you are in a situation where you believe that you have reached, or are rapidly approaching, recoupment of advances under your publisher contract, you should consider calling an audit. Unless and until developers start asserting their rights in their business relationships with publishers, they will continue to be perceived as business softies who are easily taken advantage of, and this isn’t helping your business, or, indeed, anyone else’s.

September 16, 2005

Last night’s South Florida IGDA meeting brought something to mind….the presenter was Derek Smart. He is a member of the board of the local chapter and has been an independent game developer since the mid 80’s. A real old schooler to be sure. Derek has a niche game known as Battlecruiser…now going by the name Universal Combat. He did a post mortem on his latest release and then we retired to a local bar for a Gold Party to celebrate the release. Among those in attendance was a group from the local Art Institute who are just starting out with a team that wants to do games. It was great to see Derek taking the time to interact with these rookies and, like I said, it brought something that I think about from time to time to my attention. Indie Games.

Not what they are or even if they are a viable path into the big time, but how they are viewed and where they are going. Publishers are spending more and more on top tier titles and they are very disinclined to risk capital. So, movie licenses and sequels are the menu and in house studios are the production model…at least for the most part. If an independent studio is really good, they sell out and become employees. (e.g., the DICE /EA deal). Educational institutions are moving toward becoming assembly lines to feed the “churn em and burn em” mentality of these corporate game factories and innovation and creativity are the most likely victim of the success of the game industry.

So, what does this have to do with Indie Games you ask? Well I’ll tell you…Indie Games are the last best hope for creativity and innovation in the industry. The magic of cewl gameplay means little in the world where corporate marketing departments make design decisions. And those of us who actually care about games as a progressive commercial art form (similar to films) really need to step up and find ways to facilitate this process. We need a coherent Indie Games subculture just like the film industry has. Juried shows that are attended by publishers, digital distributors and the press. We need to elevate the perception of games as art, rather than games as toys! Now there’s a project worth pursuing!

Hmmmm…how about this - Games-Florida proudly presents the Miami Winter Games Festival……

September 12, 2005

So, it looks like media giant Rupert Murdoch is going to acquire the IGN/GameSpy group for his media empire. This is the same Rupert who turned Fox news into a soulless propaganda machine to boost ratings and pander to his fellow 1%ers (those in the top 1% of income worldwide). While I am sure the folks in the marketing departments at EA and Midway will rejoice at this as part of the inevitable maturation of a growing and vibrant insdustry, I will quietlky lament the fact that gamers will have less and less impact on games.

In short, Games are not ours any more. They are theirs and in the process, they will be controlling what we play. Not a pretty thought if you ask me. Of course, there is always Indies and perhaps this will help stimulate the underground independent game movement in a way that mere barriers to entry can not. After all, it is one thing to be foreclosed from making you game because you can not afford to make the game you want. But it is another if certain games are not available because they do not fit into the cookie cutter mentality of Big Business’ perception of what THEY want made.

Gamer’s may indeed need to take their passion for making and playing games underground to survive the gobbly goop machine of assimilation and mediocrity that so characterizes any endeavor subsumed into the mainstream by big business.

September 11, 2005

Looks like I am finally getting into the whole blog thing. I’m not too sure how this is going to go since I lack any coherent plan and have little, if any self discipline. And besides, I typo like shit…so this may be more than I care to handle.

But then again, it may be just what I need. And excuse to express myself on a regular basis without any specific goal or purpose. Just venting for the sake of venting. Who knows…maybe it will even be good for me!

My plan is to attempt to post on a regular basis. Subject will be whatever strikes me as worthy of attention. Philosophy, politics, game industry trends, wood turning, my mini cooper S, doings at the Clan, Lynn, my wife, or the kids, Kira and Thomas… whatever!

It will be an attempt at an organic growth model. Adding text and categories and see what happens.